After years of steady decline in production and bottomed-out oil prices, Alaska is in a rough spot. They’re over a billion dollars in debt, in large part thanks to unfulfilled cash incentives to oil companies, and now many of their remaining oil producers are pulling out at the same time that the North Slope and Cook Inlet oil fields face thousands of layoffs.
Over the last three decades the Trans-Alaska Pipeline System, which peaked back in 1988, has been steadily draining. Where 2.1 million barrels oil once flowed through daily, now 500,000 barrels trickle through. Older oilfields in Alaska’s oil-rich North Slope have long since been drilled dry, with onetime powerhouses like Prudhoe Bay, the Kuparuk River and the Alpine now nearly out of commission.
But all hope is not lost. Now, after an executive order from U.S. Secretary of the Interior Ryan Zinke, the U.S. Geological Survey (USGS) is updating their assessments of oil and gas on Alaska’s North Slope. The USGS is looking into areas that have been protected from drilling since the 1980s, and reevaluating whether they should be opened anew for petroleum exploration. For the first time in a long time, Alaska is now facing the very real potential of a major energy industry comeback.
It has long been believed that large swaths of protected land in Alaska’s North Slope are home to vast reserves, potentially holding hundreds of millions or even billions of barrels of oil. Since these lands are home to environmentally important and delicate ecosystems, growing more precious all the time, legislation and land management policies have kept them closed to oil interests for decades. Now, with the current bullish administration and a changing government attitude toward environmental regulations, this could all be changing shortly.
Already there is some development stirring on the long-stagnant slope. In April Armstrong Oil & Gas discovered the Pikka Field, which could produce up to 1.2 billion barrels of oil, and is just one of three major finds that have reignited oil interest in the waning North Slope. In March ConocoPhillips announced the unexpected discovery of a reserve that could produce up to 100,000 barrels of oil per day, which prompted them to purchase grand parcels of land in state and federal lease sales last December.
Indeed, ConocoPhillips Alaska has already begun drilling this month at one of their new sites on the North Slope, a big development after the project was delayed last year in response to dismal oil prices. The site, a source of viscous oil, was previously deemed not to be worth the more difficult and costly extraction required for the thicker form of oil. Now, in a turn of events few could have predicted, the $460 million project is back on track and they expect oil to be flowing at the new site before the end of the year at an anticipated rate of 8,000 barrels a day. Related: When Can We Expect An Oil Price Breakout?
Inspired by the new discoveries, other oil companies are now testing their luck as well. This summer Accumulate Energy Alaska, working with Burgundy Xploration of Houston, drilled a test well 40 miles south of the North Slope to experiment with hydraulic fracking, a method that had not yet been tested in the region. Though the oil-flow tests are still in progress at that site, the company already has plans to push forward and drill two new wells next spring after the ground thaws and roads become passable once again.
While it’s too early to say if Alaska is poised for a return to its former glory, it’s certainly an exciting time on the North Slope. With once-frozen projects beginning to thaw, administrative and regulatory tides changing, and international investors pivoting north once again, Alaskan oil is ready for its resurrection.
By Haley Zaremba for Oilprice.com
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